Hong Kong begins discussions to introduce stablecoin regulatory framework

The Hong Kong Monetary Authority, Hong Kong’s central bank institution, released a questionnaire asking for public opinion about regulations regarding crypto-assets. The state-backed regulator plans to create a regulatory framework between 2023-24.

“Discussion Paper on Cryptoassets and Stablecoins” by HKMA highlights the rapid growth of stablecoin markets in terms of market capitalization, since 2020. It also highlights concurrent regulatory recommendations made by international regulators such as the Financial Action Task Force (FATF), The Financial Stability Board(FSB), and The Basel Committee on Banking Supervisions (BCBS).

Market Capitalization for Crypto-assets. Source: HKMA

According to the HKMA the current trading volume and size of crypto-assets might not be a threat to the stability global financial system’s systemic integrity. The discussion paper warns:

“The increasing exposure of institutional investors to such assets as an option to or to supplement traditional asset classes for trading and lending indicates growing interconnectedness to the mainstream financial system.”

Market Capitalization of Major Stablecoins. Source: HKMA.

Based on the above figure, HKMA’s report shows that the global crypto-asset market capitalization was approximately $150 billion as of December 2021. This is about 5% of all the crypto-asset markets. The regulator also shared a list with eight questions in order to get policy-related recommendations. It cites five possible regulatory outcomes: no action, no opt-in, risk-based, catch-all, and blanket ban.

There are several policy options that could be used to regulate crypto-assets. Source: HKMA.

HKMA expects all stakeholders to respond by 31 March 2022. It also aims to “introduce the new regime no later that 2023/24.”

The regulatory stance of major jurisdictions towards stablecoins. Source: HKMA.

The regulator concluded by stating that payment-related stablecoins are more likely to be integrated into the mainstream financial system, or day-to-day economic and commercial activities.

The HKMA is considering expanding the scope and authority of the Payment System and Stored Valu Facilities Ordinance (PSSVFO), a law which determines the legality financial products.

Related: Hong Kong realty giant raises $90M for Sygnum crypto bank

Sun Hung Kai, one of Hong Kong’s most prominent property developers, invested $90 million into Sygnum, a Swiss bank devoted to digital asset holding. This was in addition to the pro-crypto intentions of the local government.

Cointelegraph reported that Sygnum’s Series B funding round raises its post-money value to $800million, which represents a tenfold increase in consolidated revenues starting in 2021.